Friday, June 12, 2015

Court certifies class against JCPenney for allegedly false "sales"

Spann v. J.C. Penney Corp., 2015 WL 3478038, No. CV 12–0215 (C.D. Cal. May 18, 2015)
Spann sued JCP, bringing the usual California claims, for allegedly “falsely advertising ‘original’ prices, ‘sale’ prices and corresponding price discounts for its private branded and exclusive branded apparel and accessories.” In 2011, allegedly in reliance on JCP’s pricing schemes, Spann bought over $200 in private branded and exclusive branded apparel and accessories.  JCP advertised price comparisons on plastic placards above or below each product offered for sale, and one column showed what was represented to be the “original” price for each product, while the next column showed the “sale” price of each item.”
Spann believed she was able to pay significantly less than what certain products were worth and normally sell for in the retail marketplace, and was thus allegedly induced to purchase ten different items, all of which were offered at prices significantly lower than their stated original prices. For example, three blouses had labels representing them to have original prices of $30.00 and discounts of $12.01, “leaving a purchase price or [supposed] ‘deal’ at $17.99.”  Spann’s receipt contained the same misrepresentations.  However, the purported “original” prices were false, as the prevailing retail price for these blouses during the three months immediately prior to her purcase was no more than $17.99.
JCP allegedly discontinued, then returned to, these pricing practices, marking up the prices of many of its private and exclusive branded apparel and accessories, well above the interim “fair and square” prices and “well above the prevailing market price for such items, without any good faith intention of selling such items ... at those higher prices.”
The court first addressed JCP’s challenges to Spann’s damages expert Brian Bergmark, the Managing Director and one of the founders of Torrey Partners, an economic and accounting services firm. JCP argued that Bergmark’s identification of the prevailing market price for the items plaintiff purchased as the “most commonly occurring (or [p]revalent) actual sales price by item using JCPenney’s in-store data” was unreasonable and unsupportable, and that he couldn’t calculate the prevailing market price for each item solely by reference to sales prices at JCP stores.  Given the court’s conclusion (below) on the meaning of “prevailing market price,” Bergmark’s analysis of JCP’s sales data was reasonable and supportable. “JCPenney’s large volume of sales data for its own products is undoubtedly a reasonable and supportable method by which to determine the prevailing market price of products that are available only in its stores.”
JCP also objected that Bergmark wrongly equated the prevailing price to be the modal price, as opposed to the mean or some other metric, based on his (inappropriate) interpretation of the relevant California law.  That doesn’t go to commonality.  Whether one uses modal or mean price, the method of calculation (comparing purchase prices to prevailing market prices) won’t change.  JCP didn’t propose an alternative measure that would render the calculation an inherently individualized one. “Without any indication that this measure impacts class certification, this is not a dispute that must be resolved at this time.”
On to rule 23(a): numerosity was easy, of course; also typicality and adequacy.  Commonality included a number of questions, including falsity/misleadingness, likelihood of deceiving a reasonable consumer, materiality, how to calculate prevailing market price, JCP’s bona fide intent to sell at non-sale prices, and damages.  The claims of all prospective class members involved the same alleged misrepresentations related to items with common characteristics.
JCP argued that the price of each item said nothing about the price of other items, but that ignored Spann’s claim of a false advertising scheme consistent across JCP’s private branded and exclusive branded apparel and accessories. Spann submitted evidence supporting this claim—for a number of quarters, no items were offered at regular price.  “If defendant can prove that its price-comparison advertising scheme did not generate false price comparisons that deceived consumers, then it should welcome class certification.”  Either way, it would get a common answer.
On to Rule 23(b)(3) and predominance.  Spann planned to use JCP’s internal pricing guidelines, which were allegedly deceptive because one required that an ‘original’ price be the price ‘at which 5–10% of the item’s total initial shipment will be sold,’”and another requires a “14–day ‘landing period’ during which a new item would be offered at a regular price before being marked down.” At the same time, however, the guidelines “allowed discounts, such as ‘Buy one Get one at 50% [or more] Off” (BOGO) during the landing period. Spann intended to show that, as a result, “few, if any, items were ever truly offered or sold at the ‘regular’ price.” Allegedly, JCP’s “price pacing flow charts” showed that “only thirteen of the thousand-plus items [offered during four fiscal quarters during the Class Period] were ever offered at the advertised regular price; and those were for a total of only 17 days and coupled with a BOGO discount.” Given that each division met or exceeded its profit margin target at the planned sale price, Swann argued, JCP didn’t expect to sell products at the higher “regular” price. The evidence would allegedly show that only .2% of products sold at the regular price, while 98.7% of JCP’s revenues came from products offered at a discount of 30% or more.  As a result, the so-called regular prices were not the prevailing market price for any of the items during any 90 day period.
UCL liability doesn’t require individualized proof of deception, reliance, and injury, as long as members of the public are likely to be deceived by the defendant’s conduct. A jury could determine from Swann’s evidence that JCP’s pricing scheme was pervasive and that JCP was or should have been aware that it was deceptive.  She could also rely on empirical data demonstrating that false price comparisons deceive consumers and influence their purchasing decisions.  Common questions also predominated under the FAL and CLRA, which would trigger the UCL’s unlawfulness prong.  Unlawfulness also covered a claim under the FTCA.  The court looked to the FTC guides on former price comparisons: “[i]f the former price is the actual, bona fide price at which the article was offered to the public on a regular basis for a reasonably substantial period of time, it provides a legitimate basis for the advertising of a price comparison.” A former price may be fictitious or not bona fide, if “an artificial ... inflated price was established for the purpose of enabling the subsequent offer of a large reduction[.]”  JCP’s argument that each claim had to be proven on an individual basis again ignored plaintiff’s theory of the case: a systematic and pervasive unlawful price comparison policy. “Evidence of such a policy or scheme is common to all putative class members and predominates over any individual facts or questions.”
Likewise, predominance often occurs in CLRA cases because “causation, on a classwide basis, may be established by materiality, meaning that if the trial court finds that material misrepresentations have been made to the entire class, an inference of reliance arises as to the class.” Defendant’s deceptive conduct and the question of materiality predominated over individualized questions of reliance.  In Amgen, the Supreme Court affirmed certification of a securities fraud case where a failure of proof on materiality would end the case; so too here, where there might be no individual questions at all, given the plaintiff’s intent to “rely on empirical data demonstrating that false price comparisons deceive consumers and influence their purchasing decisions.” 
The court reached a similar result under the FAL.  The FAL has a specific provision about statements as to former price: “[n]o price shall be advertised as a former price of any advertised thing, unless the alleged former price was the prevailing market price ... within three months next immediately preceding the publication of the advertisement[.]” JCP argued that, to show “prevailing market price,” Spann would have to show the price offered by other retailers in the geographic area, which would vary by consumer and by item, defeating predominance.
The language of the FAL didn’t make clear what the “market” was in a case involving private and exclusive branded items sold by only one retailer.  The court found previous cases distinguishable on their facts.  The 1984 Report of the Attorney General’s Committee on Sale and Comparative Price Advertising offered an example that the court found analogous to the present claims:
[A] furniture dealer runs [an] advertisement which offers a couch which he claims was formerly selling for $100 but is now selling for $50. Unless the price which he advertises as the former price actually coincides with the “prevailing market price” of the couch within the next preceding three months ... the advertisement is again false and deceptive, and the vendor is within the prohibitions of section 17500.
Although this example didn’t define “prevailing market price,” the AG Opinion states that the price should be the “prevailing market price” of the couch, as opposed to an earlier example that required comparison with “similar mattresses” where the seller used the term “retail price” to explain its comparison. If the proper analysis of “prevailing market price” always required consideration of similar items from other retailers, there’d be no distinction between the prevailing market price of “the couch” versus “similar couches.” Still, the AG Opinion didn’t directly answer the question either.

The court turned to principles of statutory construction, which in California start with legislative intent, which itself is first determined by the words of the statute.  Intent prevails over letter, and the letter of the law will be read to conform to the spirit of the act if possible.  The court found that the law’s clarification of “prevailing market price” as “wholesale if the offer is at wholesale [and] retail if the offer is at retail” evinced a legislative intent “that courts consider the specific offer at issue, such that the relevant ‘market’ is tailored to fit the actual circumstances of the sale.”  Ultimately, the court had to identify the item’s proper market.  (See Mark Lemley & Mark McKenna on defining markets in IP.)  “In many circumstances, local sales prices for a particular item, in all stores offering it for sale, is an appropriate basis for the calculation of prevailing market price.”  The AG Opinion’s reference to finding the price of “similar mattresses” didn’t define similarity, and that could depend on the circumstances:
If, for example, the price of a queen Sealy® pillow top mattress were at issue, it might make sense to look to the local stores that sell such mattresses to determine the prevailing market price. If, however, the item at issue was a Sleep Number® mattress, which are only sold at Sleep Number® stores, considering the price of “similar mattresses ... in the open local market” will simply require examining the prices offered at local Sleep Number® stores.
Here, JCP’s “private and exclusive branded items of apparel [and] accessories,” including East Fifth, Worthington, and Liz Claiborne, were only sold at JCP stores. Thus, the market for these items consisted of defendant’s stores. JCP’s 81 California stores sold thousands of the individual items at issue; the large volume of sales data was an appropriate basis upon which to determine their prevailing market prices.
The court found this result especially appropriate given JCP’s assertions on its price tags.  JCP argued that, under California regulations, the terms “regular” and “original” were references to “former price,” as defined in the law. A “former price” is properly advertised only when it is the prevailing market price and it has been offered at that price for the preceding 90 days.  JCP claimed that, when it used “regular” and “original,” it was referring to its previous prices and expressly invoking the statutory scheme, so that a $30 “regular” or “original” price listed on a price tag communicated both that defendant’s actual former price was $30, and that the prevailing market price was $30. “If that is so, then either of the following must be true: (1) defendant already took other retailers’ prices for similar items into account when it determined its own original price and a back-end comparison is unnecessary; or (2) defendant recognizes that the market for these items consists only of its own stores.”
Using JCP’s prices to determine prevailing market price, it was clear that common questions predominated on the FAL claim. Bergmark had already analyzed JCP’s sales data and found that defendant’s advertised “original” price was not the prevailing market price for the 90–day period preceding plaintiff’s purchases. He further determined that “none of the subject items ever sold at their Regular price on the internet.” And the analysis he performed for Spann’s purchased items “could easily be performed for each and every item in the class description ... if similar sales data regarding those products is provided.” JCP didn’t explain what analyzing individual ads could possibly show that would be relevant.  Nor was the specific price provision in the FAL a safe harbor; even if JCP didn’t violate the law specific to advertising “regular” and “original” prices, it could still violate the UCL, the CLRA, and the more general provision of the FAL against false advertising.
JCP then argued that common issues didn’t predominate as to remedies.  To satisfy predominance, plaintiff needed to present a damages model consistent with her liability case. She proposed three alternative measures: (1) complete restitution; (2) restitution based on the “transaction value” promised by JCP, that is, the discount that each class member would have received had JCP offered a discount from the actual regular price; or (3) restitution based on JCP’s profits.  JCP argued that none of these were proper measures of restitution. However, the court found them to be consistent with her liability case. As to (1) and (3), plaintiff presented evidence that every dollar she spent resulted from JCP’s false advertising. As for (2), she presented evidence that the amount she thought she was saving was a factor in her buying decisions. Thus, her restitution theories were linked to her liability theories. While JCP argued that complete restitution was an inappropriate class action remedy, the cited cases were TILA and loan cases, not consumer protection cases.  There was no need to measure the value of the benefit plaintiff received because she’d just have to return the products she purchased.  Moreover, even if the value received by class members should be deducted from the purchase price, individual calculation of damages doesn’t defeat class certification.
Then, class adjudication was superior to individual adjudications, of course. 
Even if Spann wasn’t entitled to restitution, a liability-only class could still be certified. Victims of false price comparison schemes have been injured even if there is “no difference in value between the product as labeled and the product as it actually is.” Comcast didn’t change the availability of bifurcation.  Regardless, class certification was granted.


Baylink said...

> Here, JCP’s “private and exclusive branded items of apparel [and] accessories,” including East Fifth, Worthington, and Liz Claiborne, were only sold at JCP stores. Thus, the market for these items consisted of defendant’s stores. JCP’s 81 California stores sold thousands of the individual items at issue; the large volume of sales data was an appropriate basis upon which to determine their prevailing market prices.

IANAL, but I disagree there. That's like saying that AT&T shouldn't be held to task for, in the early years of the century, dropping the cost of telephone service to zero to put competitors out of business *because other AT&T prices were also zero in that market*.

Since all JCP stores are under the same administrative span of control, it seems to make little sense to use them as comparatives for themselves if the item is "name branded ladies premium clothing", given that many other retailers sell such goods, no?

RT said...

The court is saying that the comparatives are not "name brand clothing" but rather the particular brand at issue, which makes sense because it's really the only way to figure out if JCP is engaged in falsely promising sales. A retailer that promises 30% off but never sold the product at the "original" price, and doesn't tell you that the comparison is to someone else's products, is suggesting you're getting a deal for that retailer.